The Judgement in Petrodel and Prest hit the headlines recently because of the contradictions in the husband’s position and the commercial interest in the result.
Michael Prest was a successful oil trader. During his marriage which lasted 20 years and produced four teenage children, the family enjoyed a very high standard of living. The family home in London and other properties were owned by three companies, not by the husband personally. But the husband was the sole owner of the shares in the companies. Mr Justice Moylan (at first instance) found that while the marriage lasted, Michael Prest had milked his companies to support an extravagant lifestyle for the family.
Mr Justice Moylan ordered Michael Prest to transfer several properties to Yasmin Prest to satisfy an award to her of £17.5 million pounds. But the companies owning the properties appealed, and Yasmin Prest then appealed to the Supreme Court.
Section 24 (1)(a) Matrimonial Causes Act 1973 permits the court to order a party to a marriage to transfer property to which a party to the marriage is entitled to “whether in possession or reversion”. Matrimonial Judges have often gone behind appearances to look at the reality of asset ownership in order to give justice to divorcing partners. In this case, the Supreme Court had to decide whether Section 24 allowed the matrimonial court to ignore the long established legal distinction between the owner of a company and the company itself as a separate legal person (known as “piercing the corporate veil”).
Here the companies argued that if the matrimonial court had this power, there would be a damaging effect on corporate law because wives would be able to withdraw property from companies regardless of the rights of shareholders and creditors.
THE JUDGEMENT AND ITS CONSEQUENCES
In practice, the Supreme Court decided that there was no general power for the matrimonial court to pierce the corporate veil. The judgement clarifies that the matrimonial court can only ignore the separate legal personality of a company in very limited circumstances where there is evidence of a deliberate attempt to frustrate the law by interposing the company. Yasmin Prest won her case in practice because the court found the particular facts showed that the companies had acquired the properties on a resulting trust for Michael Prest. The court could order Michael Prest to transfer them because he was the beneficial owner.
The court drew back from undermining the status quo in commercial law. The case therefore does little to help wives enforce matrimonial judgements against assets held through a company.